Capitalism and Market Share Control: Antitrust Investigates
Le June 24Justice Department spokesman John Elias said Attorney General William Barr ordered investigations into 10 cannabis company mergers in fiscal year 2019 based on a personal opinion for the industry. It sounds like a lot, he said, and it is. According to Elias' testimony, these investigations accounted for 29% of the Antitrust Division (US law enforcement agency) full merger investigations during this period. Investigations by the attorney general could indict him under a new resolution.
“These mergers involve companies with small market shares in a fragmented industry; they do not meet the criteria established for antitrust investigations, ”wrote Elias, whose job description includes the pursuit of pricing systems in the pharmaceutical industry. Elias claimed his team prepared a memo for Barr explaining all of this, but Barr rejected the recommendation. "The reason for this decision was not centered on an antitrust analysis, but because he did not like the nature of their underlying business."
Today, more than 30 members of Congress back a resolution to investigate and indict Barr for abuse of power and misappropriation of resources, based on Elias' testimony.
If spending 29% of the Antitrust Division's energy on resenting weed seems unreasonable, it's worth wondering how much. After all, the cannabis industry has been inundated in recent years with large amounts of capital from venture capitalists, tobacco and alcohol conglomerates, and foreign investors. This substance is still not legal in the United States, but could the industry be threatened with a monopoly?
In a nutshell, say industry insiders: No.
This is mainly because cannabis remains highly fragmented, with manufacturers not allowed to ship products beyond state borders. Although some companies work in multiple states, David Feldman, a New York-based attorney who works with cannabis companies on mergers and acquisitions, believes the dominant multi-state operators (MSOs) are at the forefront. number of a dozen or so.
“It has not been easy for one American company in particular to really dominate overwhelmingly,” he says. "My impression on getting to know the leaders of a number of these companies is that they are fiercely competitive."
To set the context, one of the healthiest MSOs, Massachusetts-headquartered Curaleaf, grossed $ 221 million last year, in an estimated legal market of $ 12,2 billion. in the USA. A few calculations on paper show that even Curaleaf, a sizable player operating in 17 states, has less than 2% of the US market.
Andrew DeAngelo, co-founder of Harborside - an institution among California dispensaries that went public in Canada in 2019 - calls antitrust investigations "comical and absurd."
“Being a multi-state cannabis operator is extremely expensive,” he says. “This is why organizations like MedMen and others are in such distress right now. It costs them a lot more to put a foot in the ground than it is really worth right now ”.
MedMen is indeed in distress. In an epic collapse including allegations of stock manipulation, bank fraud, labor rights violations and bigotry, the spattered dispensary chain has lost 95% of its market value. MedMen's attempt to acquire Chicago-based medical cannabis company PharmaCann in exchange for 25% of its stock (which was then worth nearly $ 700 million) has been stuck in a Justice Department review while his actions were slipping. MedMen says the deal was crushed a month after it was approved due to regulatory delays. And while there is no doubt that the allegations against the company deserve attention, its monopoly potential is far from negligible.
For now, it is the federal ban, not the Department of Justice, that prevents cannabis from running a significant risk of monopoly. But that doesn't mean there is no risk. Cowen analyst Vivien Azer predicts that cannabis will evolve like the beer industry: a few big players who control the national landscape, and thousands of regional and local brands.
“I think the industry is probably still a large organized oligopoly with a focus in terms of regional strength,” says Azer.
Already, in large markets like California, those who control supply are concentrating power. Marie Montmarquet, who co-founded MD Farms, a 50 square foot farm in the Bay Area, says it's not the antitrust laws that will help protect small and medium businesses like hers, but the limits of the area available for each grower. “For me, the monopolies will be created by the people who are allowed to get the most grow space in California,” she says.
Ms. DeAngelo agrees that policies supporting a diversity of businesses will be needed to create cannabis access and prices that can compete with the illegal market.
“Even if one or two companies, or even a handful of companies, don't dominate the market, the capital needed to get started can put a strain on small businesses. That's a bigger problem, I think, ”says DeAngelo. " Same